VELOCITY FUTURES, LLC PAYS PENALTY TO SETTLE CFTC COMPLIANCE CHARGES

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Velocity Futures, LLC Agrees to Pay a $300,000 Penalty to Settle Charges that It Failed to Comply with Its Minimum Financial Requirements

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Velocity Futures, LLC (Velocity), a registered Futures Commission Merchant (FCM) headquartered in Houston, Texas, for failing to comply with the minimum financial requirements for FCMs.

According to the Order, Velocity failed to meet its minimum adjusted net capital requirement because it failed to properly account for certain events relating to two arbitration awards issued by the National Futures Association (NFA) on June 16, 2011, against Velocity and its Chief Executive Officer (CEO), and Velocity’s subsequent settlement of those awards for $2 million. Pursuant to that settlement, Velocity agreed to pay a $1 million lump payment, and Velocity’s CEO agreed to pay the remaining $1 million over 24 months. According to the Order, Velocity paid and properly accounted for the original $1 million lump sum payment. However, Velocity also paid the remaining installments on behalf of its CEO pursuant to the CEO’s indemnification claims. According to the Order, it was reasonable and probable, under generally accepted accounting principles, that the $1 million in deferred payments owed by Velocity’s CEO was, in fact, a liability of Velocity and should have been recorded as such on Velocity’s financial statements.

The Order further finds that Velocity received an $800,000 cash infusion from its parent company that it improperly classified as a subordinated loan. Under CFTC Rules, proceeds from a subordinated loan may be included in a company’s assets in calculating adjusted net capital. According to the Order, however, Velocity’s classification of this cash infusion was improper, because it was not made pursuant to a valid subordinated loan agreement that was approved by NFA, as required by CFTC Rules. Consequently, according to the Order, the cash infusion should have been treated as a non-subordinated loan and should not have been counted towards Velocity’s adjusted net capital requirements

According to the Order, once Velocity properly accounted for these events, it failed to meet its minimum adjusted net capital requirement for 264 days, from June 16, 2011 to March 6, 2012.

The Order imposes a $300,000 civil monetary penalty and a cease and desist order on Velocity for these violations.

The CFTC appreciates the assistance of NFA.

CFTC Division of Enforcement staff responsible for this action are Tom Simek, Jeff Le Riche, Rick Glaser, and Richard Wagner. Tom Bloom, Kurt Harms, Jan Ripplinger, and Lauren Fulks of the CFTC’s Division of Swap Dealer and Intermediary Oversight also assisted in this matter.